Retirement Benefits

PSE has a defined benefit pension plan (Qualified Pension Benefits) covering the largest portion of PSE employees. Pension benefits earned are a function of age, salary, years of service and, in the case of employees in the cash balance formula plan, the applicable annual interest crediting rates. Starting January 1, 2014, for non-represented employees, and December 12, 2014 for employees represented by the IBEW, participants will receive annual pay credits of 4.0% each year in the defined benefit pension or 401k plan account. Those employees electing the defined benefits pension plan also receive interest credits, which are at least 1.0% per quarter. When an employee with a vested cash balance formula benefit leaves PSE, he or she will have annuity and lump sum options for distribution. PSE also maintains a non-qualified supplemental executive retirement plan (SERP) for its key senior management employees.

In addition to providing pension benefits, PSE provides legacy group health care and life insurance benefits (Other Benefits) for certain retired employees. These benefits are provided principally through an insurance company. The insurance premiums, paid primarily by retirees, are based on the benefits provided during the prior year. Puget Energy's retirement plans were re-measured as a result of the merger in 2009 which represents the difference between Puget Energy and PSE's retirement plans.

In March 2017, the FASB issued ASU 2017-07, requiring that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The Company has included in the consolidated statements of income: (i) the components of service cost within utility operations and maintenance for PSE and within non-utility expense and other for Puget Energy, and (ii) all non-service cost components in other income.

The following tables summarize the Company’s net periodic benefit cost for the three and six months ended June 30, 2018 and 2017:



Puget Energy	Qualified Pension Benefits						SERP Pension Benefits				Other Benefits
	Three Months Ended June 30,
(Dollars in Thousands)	2018			2017			2018		2017		2018			2017
Components of net periodic benefit cost:
Service cost	$	5,425		$	5,023		$	212	$	228	$	17		$	16
Interest cost	6,780			7,088			530		571		110			130
Expected return on plan assets	(12,559		)	(11,942		)	—		—		(117		)	(116		)
Amortization of prior service cost	(495		)	(495		)	11		11		—			—
Amortization of net loss (gain)	462			—			394		269		(86		)	(88		)
Net periodic benefit cost	$	(387	)	$	(326	)	$	1,147	$	1,079	$	(76	)	$	(58	)



Puget Energy	Qualified Pension Benefits						SERP Pension Benefits				Other Benefits
	Six Months Ended June 30,
(Dollars in Thousands)	2018			2017			2018		2017		2018			2017
Components of net periodic benefit cost:
Service cost	$	10,851		$	10,040		$	423	$	457	$	35		$	36
Interest cost	13,560			14,186			1,060		1,143		220			250
Expected return on plan assets	(25,119		)	(23,892		)	—		—		(235		)	(231		)
Amortization of prior service cost	(990		)	(990		)	22		22		—			—
Amortization of net loss (gain)	925			—			790		538		(172		)	(201		)
Net periodic benefit cost	$	(773	)	$	(656	)	$	2,295	$	2,160	$	(152	)	$	(146	)



Puget Sound Energy	Qualified Pension Benefits						SERP Pension Benefits				Other Benefits
Puget Sound Energy	Qualified Pension Benefits						SERP Pension Benefits				Other Benefits
	Three Months Ended June 30,
(Dollars in Thousands)	2018			2017			2018		2017		2018			2017
Components of net periodic benefit cost:
Service cost	$	5,425		$	5,023		$	212	$	228	$	17		$	16
Interest cost	6,780			7,088			530		571		110			130
Expected return on plan assets	(12,569		)	(11,963		)	—		—		(117		)	(116		)
Amortization of prior service cost	(393		)	(393		)	11		11		—			—
Amortization of net loss (gain)	3,630			3,095			517		392		(142		)	(148		)
Net periodic benefit cost	$	2,873		$	2,850		$	1,270	$	1,202	$	(132	)	$	(118	)



Puget Sound Energy	Qualified Pension Benefits						SERP Pension Benefits				Other Benefits
	Six Months Ended June 30,
(Dollars in Thousands)	2018			2017			2018		2017		2018			2017
Components of net periodic benefit cost:
Service cost	$	10,851		$	10,040		$	423	$	457	$	35		$	36
Interest cost	13,560			14,186			1,060		1,143		220			250
Expected return on plan assets	(25,138		)	(23,931		)	—		—		(235		)	(231		)
Amortization of prior service cost	(787		)	(787		)	22		22		—			—
Amortization of net loss (gain)	7,260			6,524			1,035		783		(283		)	(320		)
Net periodic benefit cost	$	5,746		$	6,032		$	2,540	$	2,405	$	(263	)	$	(265	)

The following table summarizes the Company’s change in benefit obligation for the periods ended June 30, 2018 and December 31, 2017:



Puget Energy and Puget Sound Energy	Qualified Pension Benefits						SERP Pension Benefits						Other Benefits
	Six Months Ended			Year Ended			Six Months Ended			Year Ended			Six Months Ended			Year Ended
(Dollars in Thousands)	June 30, 2018			December 31, 2017			June 30, 2018			December 31, 2017			June 30, 2018			December 31, 2017
Change in benefit obligation:
Benefit obligation at beginning of period	$	700,481		$	652,607		$	55,754		$	51,734		$	11,454		$	11,194
Service cost	10,851			20,081			423			913			35			72
Interest cost	13,560			28,373			1,060			2,285			220			500
Actuarial loss (gain)	—			40,945			—			2,722			—			725
Benefits paid	(21,300		)	(40,594		)	(1,080		)	(1,900		)	(562		)	(1,137		)
Medicare part D subsidy received	—			—			—			—			85			100
Administrative Expense	—			(931		)	—			—			—			—
Benefit obligation at end of period	$	703,592		$	700,481		$	56,157		$	55,754		$	11,232		$	11,454

The aggregate expected contributions by the Company to fund the qualified pension plan, SERP and the other postretirement plans for the year ending December 31, 2018 are expected to be at least $18.0 million, $5.5 million and $0.3 million, respectively. During the three months ended June 30, 2018, the Company contributed $4.5 million and $0.6 million to fund the qualified pension plan and SERP, respectively. During the six months ended June 30, 2018, the Company contributed $9.0 million and $1.1 million to fund the qualified pension plan and SERP, respectively. The Company contributed an immaterial amount to fund the other postretirement plans.